CI Outlook - Archives

April 2008

April 8, 2008

Last year we wrote that this year’s market would suffer from reduced earnings growth, unnerving market volatility, compression of price earnings ratios, and lower prices.  Prescient as that prediction was, we did not foresee the rapidity with which the markets would adjust to the approaching economic slowdown.   Now, we think the markets rapid drop of twenty percent from last October’s highs has discounted an exceedingly dreary outlook for the foreseeable future.  And it is at times like these that it pays to question the widely held beliefs of the “common wisdom”.  Foremost among these widely held beliefs is that we are in a disastrous recession from which there is no respite.  As a result of this recession there is another commonly held conviction that selling stocks and buying gold and treasury bills is now the correct course of action.  This was prudent last year, but it may now be tantamount to closing the barn door after the livestock have escaped. 

We do not purport to know, with certainty, the future course of the investment markets.  However we still believe our predictions from last year are valid.  At that time we forecast painfully slow economic growth for at least the first half of this year.  We believed then, as now, that the economy in the second half of this year would begin to firm up.  Due to the recent actions by the Federal Reserve that is still a likely outcome.   Monetary action taken by our central bank has a lag time, upwards of six months, before its effects are seen in the economy.  Given that lag, we believe that Mr. Bernanke’s actions over the last few months should start to show results in the second half of the year.  Normally this would be perceived by the stock market, which always looks ahead about six months, and a rally would ensue.   However, this time, we think confidence has been so badly shaken, that market participants will be reluctant to commit funds to an advancing market.  Thus we believe any near term advance may be easily turned back at the 12,800 to 13,000 resistance area of the Dow Industrials.  This discouraging situation likely will end suddenly, when confidence levels rise and cause the holders of record amounts of cash and money market funds to believe they are missing the rally.  That should be signaled by a move above the trading range highs accompanied by significantly higher trading volume.  Although we are trying to anticipate this event we remain cautious in the very near term.  Without evidence of a change in speculative confidence we are willing to forego buying at the bottom in favor of capital preservation.

1st Quarter 2008 Returns


Net Addition


S&P 500

Corp Bond








Lastly, you will see a change in the reporting format of this quarter’s reports.  This is the result of RBC Dain’s back office conversion.  We know this change has been disruptive and apologize for the inconvenience.   RBC Dain’s decision was beyond our control and we plan to resolve the situation in the near future.  In the meantime please continue to contact us with any questions or concerns.  Thank you for your patronage.


CJ Brott                Karen Burns


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